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The Dow Jones Industrial Average had closed 166.03 points higher at 13,104.14 on Monday after signs of a possible deal.

Stephen Koukoulas from Market Economics said fears of a huge fiscal contraction that would threaten the growth of the US economy had been averted.

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The "fiscal cliff", which was set to kick in on January 1 in the US, would have led to $US600 billion ($577 billion) of tax hikes and spending cuts.

"The market will be a bit cautious obviously – nothing's a done deal yet and there's still a few issues a couple of months down the road to deal with, but the fact there's been decent progress is a positive for financial market sentiment," Mr Koukoulas said.

"It's important to remember that there's some tightening of fiscal policy, which is good news – that's what the US economy needs given its budget position – but it's not so severe as to cause a hard landing."

There were also encouraging signs emerging from China as official data released on Tuesday showed its manufacturing activity expanding in December for the third straight month.

The purchasing managers' index (PMI) remained steady at 50.6 in December, although it was slightly lower than HSBC bank's PMI survey of 51.5 - a 19-month high.

Mr Koukoulas said the lift in manufacturing appeared to have been reflected in rising commodity prices over the past few weeks, adding to suggestions the worst could be over for the global economy.

Australia and New Zealand will kick off the new year's trade and it should be very positive based on what we are seeing already

"I don't want to be too optimistic yet. But there are some encouraging signs coming through that maybe things will be a bit better over the course of the first quarter of this year," he said.

In another boost for financial markets, Chinese President Hu Jintao said in a New Year's Eve address that the country would work towards fostering global economic growth in the new year.

The country would "step up efforts to promote strong, sustainable and balanced growth in the world economy", Mr Hu, who is set to step down as president in March.

He signalled Chinese leaders' confidence that the economy may be rebounding after seven quarters of slowdown.

Mr James said news that North Korean leader Kim Jong-Un had called for a "radical turnabout" in his country's economy and offered an olive branch to South Korea would also lift the market.

In a rare New Year's address broadcast on state television, Mr Kim said 2013 would be a year of "great creations and changes in which a radical turnabout will be effected" and that "the building of an economic giant is the most important task" facing North Korea.

"An important issue in putting an end to the division of the country and achieving its re-unification is to remove confrontation between the North and the South," he added.